Restrictions on arms sales to Saudi Arabia would likely have a limited impact on US defense firms, Cowen says

America's top defense firms will face limited financial risks in their dealings with Saudi Arabia, even as lawmakers consider imposing limits on arms sales to the kingdom, according to analysts at Cowen Research.

President Donald Trump has often cited the importance of the U.S. relationship with Saudi Arabia, repeatedly pushing back on approving significant economic or political consequences for Riyadh's actions.

Of the major defense suppliers, Lockheed Martin would have the most exposure, according to the note, but it would still amount to a relatively tiny portion of the company's business.

U.S. Navy Aviation Electronics Technician signals to the crew of an EA-18G Growler on the flight deck of aircraft carrier USS Carl Vinson.

WASHINGTON — America's top defense firms will face limited financial risks in their dealings with Saudi Arabia, even as lawmakers consider imposing limits on arms sales to the kingdom, according to analysts at Cowen Research.

"It would appear that these would be limited in duration and scope, and big-ticket buys of missile defense systems would not be impacted," the analysts wrote in the note.

Of the major defense suppliers, Lockheed Martin would have the most exposure, according to the note, but it would still amount to a relatively tiny portion of the company's business.

Saudi Arabia's oil-rich monarchy is one of America's most strategic partners and a significant patron of U.S. defense companies. The Saudis are the indisputable top buyers of U.S.-made arms, a title that has safeguarded the kingdom from retaliatory sanctions over the disappearance of journalist Jamal Khashoggi and the Saudi-led war in Yemen.

President Donald Trump has often cited the importance of the U.S. relationship with Saudi Arabia, repeatedly pushing back on approving significant economic or political consequences for Riyadh's actions. In an extraordinary statement last week, Trump affirmed that the U.S. would continue to stand with Saudi Arabia.

Trump has also commented on the potential impact to defense suppliers if the U.S. were to sanction the Saudis over the Khashoggi killing.

"I tell you what I don't want to do," Trump said to CBS' "60 Minutes" last month, when he was asked about possibly blocking arms sales to Riyadh. "Boeing, Lockheed, Raytheon, all these [companies]. I don't want to hurt jobs. I don't want to lose an order like that. There are other ways of punishing, to use a word that's a pretty harsh word, but it's true."

However, if Congress imposed short-term restrictions on Saudi weapons sales the resulting impact looks to be less than 2 percent of sales for Lockheed Martin, Raytheon, Boeing and General Dynamics, and negligible for Northrop Grumman.

Here's a breakdown of what top defense firms are selling to Saudi Arabia and which contracts are at risk.

Lockheed Martin has the broadest Saudi exposure

U.S. Department of Defense | Missile Defense Agency | Reuters

A Terminal High Altitude Area Defense (THAAD) interceptor is launched during a successful intercept test, in this undated handout photo provided by the U.S. Department of Defense, Missile Defense Agency.

From missiles to helicopters, the Pentagon's top weapons supplier is selling a range of arms to Saudi Arabia. Of the top five U.S.-based arms makers, Lockheed Martin has the broadest Saudi exposure and is slated to bring in $400 million this year from Saudi sales alone. Next year, Lockheed Martin is expected to rack up approximately $900 million in sales to the kingdom.

The defense firm has said that sales to Saudi Arabia are slightly less than 5 percent of this year's total. The figures are expected to remain consistent in 2019.

According to the note, the Saudi sales that are at risk are munitions and missiles. The at-risk ticket items account for approximately $500 million, or less than 2 percent, of Raytheon's total.

Boeing sales are significant but declining

U.S. Air Force photo

An F-15E Strike Eagle aircraft departs after receiving fuel from a KC-135R Stratotanker aircraft during a mission over the Persian Gulf.

Similar to Lockheed Martin, Boeing sells a range of weapons to Saudi Arabia. The world's largest aerospace company is on order to deliver F-15 jets, Chinook and Apache helicopters, as well as a plethora of munitions to the Saudis.

Boeing "likely has the largest absolute level of sales" to Saudi Arabia, at approximately $1.7 billion, according to the note.

Cowen analysts write that Boeing's largest program, the F-15 jets reportedly worth more than $1 billion, is nearing completion and sales taper off in 2019.

"Furthermore, given Boeing's large commercial volume, Boeing's Kingdom of Saudi Arabia defense sales are only approximately 1.5 percent of its total," according to the note.

General Dynamics sales are concentrated and stable

U.S. Marine Corps photo

Marines from 4th Tank Battalion, Twentynine Palms, Calif., roll down a dirt road on their M1A1 Abrams Main Battle Tank during a day of training.

General Dynamics has a multiyear contract with Saudi Arabia for the delivery of 100 Abrams tanks as well as a Canadian vehicle contract.

America's stalwart M1 Abrams has been used in nearly every major U.S. conflict since its inception in 1980 and serves as the main battle tank of the U.S. Army and Marines. The Abrams deal with the Saudis is estimated to bring in $1.3 billion.

Meanwhile, the Canadian vehicle contract extends to 2024 and looks to add $5.9 billion.